Reforms will bring stability to markets, say experts
While the rally in the first half of 2012 was mostly fuelled by the gush of liquidity, analysts say implementation of reforms is key to how the markets will perform in the remaining half of the year.
It has been an eventful first half of calendar year 2012 (H1CY12) for the equity markets across the globe. In the Indian context, the benchmark indices, the Sensex and Nifty, outperformed their BRIC peers in the H1CY12, after recording a 25 per cent fall in CY11.
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The last trading day of H1CY12 saw the Bombay Stock Exchange’s benchmark index – Sensex, gaining 439 points due to positive domestic and global cues. For H1CY12, the Sensex gained 12.8 per cent and the Nifty rose 14.2 per cent since the last trading day in December 2011. This is as compared to Brazil (negative 7.23 per cent) and Russia (negative 4.6 per cent) returns and the 1.2 per cent rise seen in the Chinese markets.
|STABLE SHOW |
A snapshot of top gainers and losers in BSE 500 (Price in Rs)
|Dec 30, ‘11||Jun 29, ‘12||%chg|
|Tuni Textile Mills||36.50||136.70||274.5|
|Shree Global Tradefin||193.25||83.7||-56.7|
|*BSE 500 data Data complied by BS Research Bureau|
While on the one hand, the gush of liquidity sent the benchmark indices soaring in the first three months of 2012, macro-economic headwinds, policy logjam, statements from the Reserve Bank of India (RBI) and the political upheaval sobered the mood in April-June.
Foreign institutional investors have pumped in a net $8.57 billion (Rs 42,080 crore) so far in 2012, data shows. Their net investments stood at $8.9 billion (Rs 44,308 crore) in the first three months.
“The first six months of CY12 has seen the Nifty move in a very broad range of 4,600-5,600. In the last three months, however, it has mostly been range-bound, given the global and domestic economic conditions," said A K Prabhakar, senior vice-president (equity research), Anand Rathi.
Among individual sectors, the BSE Bankex was the top gainer, surging 30.1 per cent. It was followed by the BSE FMCG and the Capital Goods indices. “Since Bankex was one of the top under-performers last year, 2012 was more of a pull-back," Prabhakar added.
Dena Bank (up 102 per cent), UCO Bank (up 75 per cent), Syndicate Bank (56 per cent), IndusInd Bank (up 51 per cent), Andhra Bank (up 48 per cent) and J&K Bank (up 47 per cent) were some of the prominent banking stocks that logged smart gains among the BSE 500 during the period under review.
The most surprising entrant in the top five club was the BSE Realty index, that gained 21 per cent in this period. “I think the realty sector did well in the first half, as contrary to expectations, real estate prices did not crash. This, I feel, got reflected in the stocks. The true value of assets these companies hold is higher than the current market price," stated Deven Choksey, MD, KR Choksey Shares and Securities.
Top gainers in the realty space included stocks, such as Sobha Developers (up 77 per cent), DB Realty and Reliance Infrastructure (up 64 per cent each), Prestige Estate Projects and HDIL (up 63 per cent each), an analysis of the stocks in the BSE 500 shows.
Economic and political developments in the last three months, which also was the first quarter of financial year 2012-13, saw scepticism creep into the minds of investors. As a result, they flocked to safer havens like FMCG and pharma, which typically are considered defensive bets in a volatile market environment.
The stocks that recorded most gains include Wockhardt (up 238 per cent), Strides Arcolab (up 85 per cent), Natco Pharma (46 per cent) and Divi’s Labs (up 32 per cent), data suggests. FMCG stocks like ITC and HUL surged 29 per cent and 11 per cent, respectively.
The road ahead
Market experts are of the opinion that high interest rates, rising inflation, slower GDP growth rate and the depreciating rupee will continue to be major concerns.
Says Choksey, “The markets will react to both domestic and global cues over the next six months. The euro, as a currency, would determine the rupee’s movements. At the domestic level, the government would have to act swiftly and kick-start the reforms process. In my opinion, the Nifty can scale up to 5,400 levels in the immediate-term, post which, it can touch 5,700."
“Over the next six months, I would prefer to adopt a stock-specific approach. Banking sector should do well in the remaining part of CY12. Stocks like SBI, ICICI Bank, Axis Bank and IndusInd Bank are top picks in this space. I also like REC and IDFC from the infrastructure financing pack," he adds.
But will we be able to attract similar inflows in the next six months as seen in H1CY12? Says Raamdeo Agrawal, joint managing director, Motilal Oswal Financial Services, “My sense is that if we start to get the policies in order and implement the much-needed reforms, we can attract healthy inflow."
Echoes Choksey, “Decision on the policy front and clarity on issues like withholding tax, etc will give the markets much-needed stability."
Stocks to buy
So, what should you be buying then?
According to Prabhakar, stocks like Tata Motors, Jubilant FoodWorks, TTK Prestige and Titan that did well in the past six months are now showing signs of fatigue. This trend is also visible in the auto pack. He is bullish on hotel stocks like Indian Hotels, Taj GVK and Mahindra Holidays, and expects Cadila Healthcare, Ipca Laboratories and Piramal Healthcare to do well in the pharma space.
Though it is good to remain optimistic, analysts do advise caution as things stand. “It is time to be optimistic without going overboard. In case there is disappointment on how the monsoons pan out, the Nifty can correct around five per cent," says Mehraboon Irani, principal and head – private client group, Nirmal Bang.
“Among the mid-caps, one can look at IndusInd Bank, J&K Bank, VST Industries, NIIT, NIIT Technologies, Infinite Computer, MindTree and Hi-Tech Gears," Irani adds.